Rethinking a lopsided homeownership policy

Whether to rent or to buy is a financial decision informed by discrete economic and strategic considerations. The result is the same: control over possession of household shelter. Whether through a lease agreement or a grant deed, the goal for the household is possession.

But our housing policies treat one like a sacred rite and one like a moral failure. It’s time to reevaluate this archaic premise.

Take, for example, the mortgage interest deduction(MID): this upside-down subsidy’s benefits grow evermore lopsided with the size of the mortgage (and the price paid for the house securing it). A raft of other housing subsidy policies — of which the MID represents a huge portion — exist with the explicit goal to increase the homeownership rate at a cost carried by taxpayers.

An ownership-for-all ethos has dominated U.S. economic and urban policy since the Great Depression and WWII. Policymakers have since been inspired to juice the economy during recessions, stimulating a frenzy of building and home consumption.

To achieve this, the practical exercise of securing possession of one’s personal shelter was transformed into a quasi-religious rite of passage. Through housing policies that favored owners and left renters adrift, homeownership was entrenched as the only perceived entry point to the pathway to stability and prosperity. For half a century, buying a house — along with marrying and having children — has been heralded as one of the primary milestones of the mercurial “American Dream.”

But while the public policy concerns that promoted universal homeownership have long since faded, the bias created continues to dominate our perception of the benefits and necessity of homeownership.

Refreshed economy, fresh concepts

Today, the long-term commitment of homeownership makes sense for fewer and fewer people. It takes years to build up the resources needed to cover the transaction costs of purchasing and carrying a home. However, today’s labor market and the pay it provides no longer guarantee upward mobility by way of a linear career path and wage spiral in a single company or industry.

Worse, owners can’t easily move to a better job or greater opportunities when they’re tied down by a mortgage. Rising interest rates will drive buyers to take over existing low rate mortgages one way or another, but not without resistance from mortgage holders based on their insistence on non-assumability.

Tastes are changing, too — and the preferences and demands of younger generations are of course well ahead of housing policies. Generation Y (Gen Y) harbors a healthy degree of skepticism toward homeownership, thanks to the family trauma they witnessed in the Great Recession. They also tend to prefer the sociability, amenities and opportunities afforded by more urban environments, where rental housing predominates.

But more importantly, Gen Y takes a considerably less dogmatic approach to the strategic considerations around gaining control over possession of their shelter. For them, renting does not carry the stigma of failure; it’s a practical decision informed by financial circumstance and lifestyle match. By the same token, owning is not a cultural imperative —it has to make sense as a means to take possession.

And further, homeownership may never be a realistic goal for a growing share of the population. A burgeoning service sector means a larger renting working class and a smaller homebuying middle class. Helpful as it may be, a $10 or even $15 minimum wage is not a salary consistent with homeownership, especially in California. But service sector workers still need properly located shelter available at their income level.

Balancing the benefits of owning versus renting

Homeownership is lauded as the foundation of stable, thriving communities. Renters, on the other hand, are traditionally disparaged as financially irresponsible and morally inferior, a product of our national housing policy. Both of these sentiments are fine examples of a correlative fallacy: high-homeownership communities are stable and healthy because the nation’s housing policy makes it easy for them to be, not because homeowners themselves are somehow inherently better citizens.

Conversely, rental-focused areas experience high turnover and its negative consequences in part because housing policies don’t do as much to encourage renters and landlords to get invested in their neighborhoods, either socially or financially.

Government-backed mortgages with miniscule down payments entice young renters to join the home owning ranks, perhaps sooner than they’re otherwise ready. The MID subsidy, meanwhile, incentivizes tenants to stretch their borrowing abilities to the absolute maximum to become owners, in search of a juicier tax deduction. One only needs to recall that excessively easy access to mortgage credit was one of the principal drivers of the Millennium Boom and the following Great Recession.

And renters are by no means the drain on local economies they’re sometimes made out to be. Rental housing contributed $139 billion to California’s economy and supported 1.3 million jobs in 2012-2013, according to a report published by the National Multifamily Housing Council (NMHC) and George Mason University. That’s not just rents, but all aspects of multi-family housing including:

construction and maintenance;

rents;

property management and support; and

tenant household spending.

Homeownership is good. It is an important economic driver and a means to create and build wealth for many Californians — not just homeowners, but workers in the housing construction and real estate industries as well. But our housing policies place too strong an emphasis on ownership, which on its own is not the socioeconomic panacea it’s cracked up to be.

It doesn’t make sense to lavish homeowners with all kinds of rewards and incentives — often to the detriment of larger economic well-being — especially when California’s homeownership rate is about to slip below just 53% of households.

It’s time we start treating non-ownership like the legitimate economic alternative to ownership it is, not a fundamentally lesser alternative.

2 Comments

Dale Koehler
on October 5, 2016 at 11:43 am

Elderly retired couple, 80 years old seek to downsize residence. Have 500k equity in duplex in upscale Sacramento neighborhood; do not want reverse mortgage because of loan costs involved and because of our age. Seek refinance to lower our current monthly payment $300 a month on the duplex we live in and rent the other side out. Really no alternative options that make sense to us. Seek a suitable refinance on 221K current loan. Please advise.

In fact, home buying is as horrific a burden in the years of inordinate profit to lending, as is renting. The enormous monthly payments for rent rival at all turns the huge prices to buy a home. Who benefit are the lenders – all kinds of lenders: credit cards, banks, corner lending stores, and the startling costs requiring borrowing in order to go to school.
Who the auto sales people like least to see are people paying outright for their purchase.

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